Life Insurance for Unmarried Couples

Life insurance provides a financial safety net for your partner — whether married or not — if you pass away. When you buy insurance and name your partner as the beneficiary, he or she receives a tax-free lump sum upon your death. The life insurance payout can provide crucial financial support, ensuring the person you love most will be financially secure in your absence.

Often, it is possible to purchase a life insurance policy with your partner or joint life insurance with them. Keep reading to learn all you need to know about life insurance for unmarried couples.

Understanding the Importance of Life Insurance

Life insurance is a crucial aspect of financial planning for unmarried couples, providing financial protection and support in the event of a partner’s passing.

It can help cover funeral expenses, outstanding debts, and ongoing living costs, ensuring that the surviving partner can maintain their standard of living. By securing a life insurance policy, you can ensure that your partner is not left struggling financially during an already difficult time. This financial safety net can be a lifeline, allowing your partner to focus on healing rather than worrying about money.

Can Unmarried Couples Get Life Insurance?

Yes, unmarried couples can buy any type of insurance. However, they may be asked to prove insurable interest if: 

• They want to take out a policy on each other
• They want to purchase a joint life insurance plan (which covers two people but pays out only once)

Please note you don’t need to demonstrate insurable interest when you name someone as your beneficiary. Policyholders can name anyone they want as their beneficiary, including a business entity, charity, or pet.  

Understanding Insurable Interest

Demonstrating an "insurable interest" is crucial when applying for a life insurance policy on your unmarried partner or when applying for a joint life insurance plan together. 

Underwriters need proof of insurable interest when someone wants to buy a policy on another person or when two individuals want to be covered under a single policy.

Insurable interest is usually recognized in certain relationships without any financial proof: spouse/spouse relationship, parent/child relationship, and grandparent/grandchild relationship. 

However, unmarried partners must prove insurable interest in purchasing a policy on each other. Having an insurable interest in a person means you’ll financially suffer if the insured passes. 

Let’s say you and your significant other have a mortgage together. If one of you dies, the responsibility of paying the mortgage balance will fall on the shoulders of the partner. In other words, you two share an insurable interest and should be able to take out joint life insurance or an individual policy on each other. 

What Types of Life Insurance Policies Are Available to Unmarried Couples?

Unmarried couples have access to all types of insurance: individual, joint, and group life insurance. The right type of policy for you and your partner depends on your unique circumstances, financial goals, and budget. 

Here’s a closer look at how each type of life insurance for unmarried couples works:

1. Individual Life Insurance 

There are many different types of individual life insurance policies, but the two most popular ones are:

• Term Life Insurance
• Whole Life Insurance

Where they are both permanent life insurance.

Determining how much life insurance is necessary involves analyzing financial dependencies within a household. It's important to understand the financial contributions of each partner and the potential impact on finances if one partner were to pass away. A policy should ideally cover five to ten times the individual’s pre-tax income.

Term life insurance covers a specific period, say 10 or 20 years. Your beneficiary receives a tax-free lump sum if your death occurs during the policy term. If you outlive your policy, coverage expires automatically unless you renew it. Many term life insurance plans allow you to renew coverage at the end of the term without any additional underwriting. This feature can come in handy if you need life insurance protection for longer than expected and your health is not what it used to be. You can also supplement your permanent life insurance with additional term life insurance. It is a permanent life insurance that is right for most people since it’s easy to understand and affordable — monthly premiums can be cheaper than the cost of a cup of coffee a day!

Whole life insurance is a type of permanent life insurance. It provides coverage for as long as you (or as long as you want) and builds cash value. You can access your policy’s cash value by withdrawing, taking out policy loans, or surrendering the policy. Your beneficiary receives only the death benefit when you die. It is significantly costlier than term life insurance but provides assurance that your dependents will eventually receive the death benefit.

How does individual life insurance work: You and your significant other buy separate individual policies, naming each other as beneficiaries.

Things to consider:

For most couples, buying two separate policies makes a lot of sense. Having a separate policy gives you more control over it. Term life insurance is cheaper than whole life insurance, providing affordable coverage for as long as needed. But if you want your policy not to expire and will benefit from the cash value feature, whole life insurance might be right. 

Find the best rates

Compare quotes from Canada's top life insurance companies in no time.

Compare Rates

2. Joint Life Insurance

Joint life insurance covers two people: married couples, family members, unmarried couples, and business partners. But it pays out only once. Premiums are usually cheaper than two separate policies; it is not the best option for everyone.

Working with top life insurance company to compare various policies and provide tailored solutions ensures you receive the best coverage for your needs.

There are two types of joint life insurance:

• First-to-die life insurance: It pays the death benefit upon the first person’s death. For this reason, it is frequently used as an income replacement tool. The surviving partner can use the funds to support the family. Once the death benefit is issued, coverage ends automatically. If the partner still needs life insurance, he or she must reapply.
• Second-to-die life insurance: As the name suggests, second-to-die coverage pays the sum assured when both people covered by the policy have passed away. If you have this type of coverage and your partner dies, you will not receive the death benefit. Second-to-die life insurance is mainly used to help with estate planning. Some unmarried couples may also opt for second-to-die life insurance to provide funds for a child with a disability, leave an inheritance for their children, or make a meaningful contribution to their favorite charity.

How does joint life insurance for unmarried couples work

The application process for joint life insurance is the same whether you are married or unmarried. However, unmarried couples need to prove insurable interest — which is automatically assumed in the case of married couples. When applying, you’ll have to choose between first-to-die or second-to-die coverage.

It is important to evaluate financial responsibilities, such as debts and savings, to ensure the life insurance coverage amount provides adequate financial security for your partner in the event of an unexpected loss.

Things to consider

Interested in buying joint life insurance? Key things to keep in mind are: 

• Most carriers offer joint life insurance as permanent life insurance policies, although a few offer term life policies. 
• Deciding how to split a  life insurance policy could be complicated if you and your partner part ways
• Make sure you pick the right joint life insurance plan for your situation. While first-to-die coverage offers a financial safety net for the surviving partner, a second-to-die policy is a good choice for estate planning and leaving an inheritance. 

3. Group Life Insurance 

Many Canadian employers offer their staff group life insurance as part of a group benefits plan. If you, your partner, or both of you have access to group life insurance, strongly consider signing up for it. It is often free or at reduced rates, plus no medical underwriting is involved. You can get life insurance coverage despite health issues. 

How it works: Your employer pays all or part of the premiums and decides the coverage details. You can name anyone as your beneficiary and update the beneficiary designation anytime. 

Things to consider: Group life insurance is an important workplace benefit, but it has certain limitations, such as: 

• The coverage amount is limited, often not more than one or two times your annual salary. You must take up group coverage if offered by the employer, but it might be a wise idea to supplement it with a personal life insurance policy 
• The coverage is usually not portable — you can’t carry it with you if you switch jobs

Policy Ownership or Naming Your Partner as Beneficiary — Which is a Better Option? 

As an unmarried couple, you can certainly buy a life insurance policy for each other. However, the most direct way to ensure each other’s financial well-being is to pay for your policy and name your partner as the beneficiary. This way, you’ll retain full control over your policy while your partner will receive a death benefit upon your death, allowing him or her to live comfortably after you’re gone. 

Policy Application Process

The application process will vary a little depending on whether you are taking out a policy on your life or your partner’s life or buying a joint life insurance together. 

If you buy a policy on your partner, you must show that you have their written consent and share an insurable interest. 

You must prove insurable interest if you purchase a joint policy with your partner. 

Otherwise, the application is the same and involves the following steps: 

1. Get price quotes

Premium rates vary by insurer. Therefore, compare quotes from at least three to five insurance companies to ensure you get good value. 

2. Fill out the application form

Fill out the application form and provide any documents the insurer requests, such as proof of insurability. The application form may include questions regarding your relationship status, current health, medical history, and lifestyle, among other things. Answer all the questions truthfully. Lying on a life insurance application is a form of insurance fraud and can have serious consequences, including policy cancellation, claim denial, inability to get coverage elsewhere, and legal trouble. 

3. Take a medical test

Most life insurance policies require you to take a physical exam, which is similar to a regular yearly checkup. It allows insurers to make informed decisions about you based on your health status and price your policy fairly and accurately. You can choose the date and time of your medical exam, which usually takes 15 to 45 minutes. 

4. Wait for the insurer’s decision

The insurer will go through your application and your medical exam results to determine whether to write you a policy or not and how much premium to charge you. The entire process can take anywhere between 4 to 6 weeks, but you may have to wait longer if the insurer asks for an attending physician statement (APS). An APS is a summary of your health condition written by a doctor who has treated or is treating you. 

5. Pay the first premium

If the insurer accepts your application and you’re happy with their terms and conditions, sign the contract and pay the first premium to activate the policy. 

Tax Implications for Unmarried Couples

Life insurance proceeds paid in a lump sum to the beneficiary are not taxable. Life insurance death benefits are generally not classified as taxable income for recipients, including unmarried couples. But in some other scenarios the death benefit payout could have tax implications.

• If the beneficiary receives the policy proceeds in installments, the interest accrued is taxable
• If the policy owner’s estate receives the payout, taxes would have to be paid
• If you cash in a whole life or universal life policy before death, the amount of the payout that exceeds the total premiums paid would be taxable
• In the event that life insurance is combined with retirement accounts or annuities, the tax regulations could be complex and vary for an unmarried partner in contrast to a lawful spouse.

Conclusion

Life insurance offers a cost-effective way to provide financial protection to your unmarried partner if you’re not around anymore to support them. If you and your partner share financial assets and obligations, you can buy a policy on each other’s life or a joint life insurance plan. When it comes to life insurance options, unmarried couples have many choices at their disposal, including term life, whole life, and joint life insurance. 

If you’re unsure what type of life insurance best meets your needs, let Dundas Life help you. We will take time to understand your unique situation, financial goals, and budget and offer transparent, unbiased advice. We can also provide you with free quotes from multiple providers to help you pick a great plan at a great price. Reach out to us today.

Frequently Asked Questions (FAQs)

Can unmarried couples get life insurance on each other?

Yes, you can get life insurance on your partner, but only if you have their consent and an insurable interest. Having an insurable interest in someone means you will experience financial loss or hardship if that person dies.  

Do we need to live together to buy life insurance for each other?

When seeking a policy for your unmarried partner, the most important thing is whether you have an insurable interest in their life — not whether you are cohabiting. Naturally, partners who live together are more likely to share assets and financial obligations (in other words, have an insurable interest). However, people in a stable, steady relationship can live apart but share major expenses like kids or a mortgage. If that’s true in your case, you should be able to buy life insurance for each other, despite having different addresses. 

Is it more challenging for unmarried couples to prove insurable interest?

Insurable interest is often presumed for married couples, so there’s no need for financial proof. However, the same is not true for unmarried couples. They must prove insurable interest if they want to buy a joint life insurance policy. Doing so, however, is rather easy if you and your partner share assets, like a house, or have registered domestic partner status.   

Can we name each other as beneficiaries without being married?

Yes, you can. You don’t have to be married to be able to use life insurance to secure the financial future of the person you love. Naming your unmarried partner the beneficiary of your life insurance policy can help secure their long-term financial well-being. 

What happens to the policy if we separate or end our relationship?

If both of you have separate policies, you only need to decide whether you want to update the beneficiary designation. If your ex is the primary beneficiary, perhaps you want to change that. If you have a joint life insurance plan, you may be able to split the policy into two individual policies. Speak to your insurer to find out if that’s possible. Otherwise, canceling the policy and buying a new policy for yourself might be the best solution. 

Are there any specific life insurance policies designed for unmarried couples?

No, not really. There’s no such thing as life insurance specifically for unmarried couples simply because unmarried partners have the same life insurance choices as couples who tie the knot. Just like married couples, they can buy either two separate policies or a joint life insurance plan (as long as they share financial assets).   

How does joint life insurance work for unmarried couples?

Joint life insurance is joint life insurance — it works the same way whether you are a married or unmarried couple. The only thing different in the case of unmarried couples is that they need to prove insurable interest at the time of applying. Once the policy is in force, you must continue paying premiums to keep it active. Depending on the terms of your plan, it will pay out either after one of you passes away or after both of you have died. 

Can life insurance help with estate planning for unmarried couples?

Yes, it can. Buying a life insurance policy and naming your partner as the beneficiary ensures he or she receives a tax-free, lump-sum amount after you pass.  

Are premiums for unmarried couples higher than for married couples?

Life insurance for unmarried couples isn’t typically more expensive than for married couples. Life insurance premiums are primarily based on your age, health, medical history, lifestyle, and desired type and amount of coverage — not marital status.